London defies slow UK real estate market

 
Julian Harris
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GROWING demand for office space and a booming London market are offering some hope for the UK’s ailing commercial property market, a new survey revealed today.

And while the residential property sector continues to slump across the UK, house prices at the top end of the London market are expected to rise by nine per cent this year – in another sign of the capital producing a “two tier” property market.

Estate agent Knight Frank hiked its forecast for prices on London’s top homes, following a surge in demand by 52 per cent.

The soaring market has attracted investors to build over £20bn-worth of new luxury London homes, according to research by EC Harris LLP, also published yesterday.

Yet sluggish activity in the rest of the UK’s residential market has contributed towards a 12th straight quarter of negative housing equity withdrawal, separate data released by the Bank of England showed.

Outstanding mortgage debt fell by £5.8bn in the first three months of the year – a slower decline than the record £7.1bn drop recorded in the final quarter of 2010.

Large reductions in equity withdrawal are largely due to “a fall in the number of housing transactions”, according to the Bank.

When more houses are bought and sold, there tends to be an increase in the net flow of lending secured on properties, the Bank has found.

In the commercial property sector, London is the only region in which revenues from rent are expected to increase in the next quarter.

Across the UK as a whole, a negative balance for four per cent of respondents expect rents to fall, according to provisional results from the Royal Institution of Chartered Surveyors (RICS).

In central London, a positive balance of 16 per cent of surveyors expect rents to increase, while greater London leads the way, with 18.5 per cent more surveyors expecting a rise in rents than those anticipating a fall.

Across the country, office space is the only sub-sector in which rents are expected to increase. Expectations of revenue from industrial and retail property have picked up, but still remain in negative territory.

“Moreover, within the capital it is the office sector which has enjoyed the most pronounced recovery,” said RICS economist Simon Rubinsohn. “Yet there is little reason to believe that this improvement in London will fan out to other parts of the UK any time soon.”